Economy, Business And Markets

Tehran, Seoul to Discard US Dollar in Transactions

Tehran, Seoul to Discard US Dollar in TransactionsTehran, Seoul to Discard US Dollar in Transactions

South Korea will launch a euro-based settlement system for transactions with Iran next week, one of the biggest financial barriers to trade with Iran, following the lifting of international sanctions, the financial minister said Thursday.

"The euro-based settlement system for South Korea-Iran trade will start on Aug. 29," Finance Minister Yoo Il-ho told reporters after a policy meeting held in Seoul, Yonhap News reported."The opening of the system will further help promote bilateral trade and investment."

Following the landmark nuclear deal earlier this year, sanctions imposed on Iran were lifted, but money transactions based on the US dollar are still prohibited.

The two countries have used a won-based settlement system since September 2010 to bypass trade restrictions and allow the two sides to conduct trade without violating the embargo.

Under the current system, two local banks—Woori Bank and the Industrial Bank of Korea—have their own accounts in the Iranian central bank for making trade payments.

A South Korean company makes a purchase from Iran and deposits the money into one of the accounts, while Iran's central bank confirms the transfer and gives the Iranian seller rial, the Iranian currency.

The South Korean government has made efforts to set up a new settlement system as an alternative to expand trade and investment with the oil-rich country.

The finance minister said KEB Hana Bank, Shinhan Bank and Woori Bank will handle the euro-based payment system for trade, which is widely preferred by Iranian companies.

Industry data showed that trade volume between Korea and Iran stood at $6.1 billion in 2015, down sharply from $17.4 billion in 2011 due to sanctions imposed on Iran over its civilian nuclear program.

Iranian Foreign Ministry's Director General for Political and International Security Affairs Hamid Baeidinejad said the development, which is taking form after a round of intense negotiations to further implement the Joint Comprehensive Plan of Action, removes one of the hurdles on the way of dealings with South Korea, reported.

"Because South Korea's currency is used only in the country, any trade transactions with other countries must first be converted into dollar and then a third currency such as euro," he said.

Baeidinejad noted that considering the US restrictions on Iran's dealing with dollar and CBI's decision to not use the greenback, "it was effectively impossible to change South Korea's won into euro and that had become an insurmountable barrier on the way of bilateral trade deals".